On September 18, the spot gold price rose to its highest level in 1 week.
Gold posted a weekly gain for the first time after 4 consecutive weeks of declines, but pressure related to interest rates also remained.
This movement shows why it is difficult to view gold prices solely as an “inflation haven.”
3-Line Summary
1. Gold prices posted a weekly gain for the first time in 4 weeks
2. Spot gold was $4,390.11 per ounce (4390.11)
3. Oil prices, the dollar, and interest rates must be considered together
Spot Gold Rises 1.2%, Up About 1% for the Week
On September 18, spot gold rose 1.2% from the previous day to $4,390.11 per ounce. During the session, it rose to its highest level since September 11, and gained about 1% cumulatively for the week. U.S. gold futures settled 0.6% higher at $4,424.90 per ounce.
Reports pointed to falling oil prices as the direct background. The explanation was that declining oil prices reduced concerns that inflationary pressure could persist for a long time, prompting the rapid unwinding of short positions that had bet on a decline in gold prices. This was the market interpretation of Chris Gaffney, head of the global markets division at EverBank, and does not mean that a sustained rise in gold prices is certain.
Spot silver, platinum, and palladium also rose on the same day, and all three metals recorded weekly gains. However, it is difficult to explain gold’s movement solely through the simultaneous gains in other precious metals. The key link presented in the report was oil prices and inflation concerns.
Rate Hikes and a Strong Dollar Could Limit the Upside
The U.S. Federal Reserve raised its benchmark interest rate by 0.25% percentage points that week, adjusting it to a range of 3.75~4.00%, and also signaled the possibility of additional hikes over the coming months. A report citing the CME FedWatch tool said traders saw a 55% chance of another hike at the October meeting.
Gold is an asset that pays no interest. As a result, when interest rates rise, its appeal as a holding may weaken compared with assets that can generate returns. At the time, the dollar rose to its highest level in about 7 weeks, increasing the price burden of dollar-denominated gold for investors holding other currencies. Even on a day when falling oil prices worked favorably for gold, interest rates and the dollar remained sources of pressure in the opposite direction.
Gaffney believed gold prices were testing a resistance zone around $4,400~$4,440. This was only a market participant’s outlook, and it had not been confirmed whether prices would break above that range.
The “Inflation Insurance” Interpretation Also Requires Conditions
Jeff Sarti, chief executive officer of Morton Wealth, assessed gold on September 18 as an insurance instrument against inflation, currency fluctuations, and deteriorating fiscal policy. He argued that gold and 10-year U.S. Treasury bonds should not be compared simply on the basis of their yields.
Conversely, the report also stated that if the dollar and long-term Treasury yields rise while inflation falls and the economy remains solid, the opportunity-cost burden of holding gold could increase. It explained that gold came under selling pressure during periods when the 10-year yield approached 5%.
The most notable point in this weekly rebound is that gold prices did not respond to just one piece of news. Falling oil prices reduced inflation concerns, but rate hikes and dollar strength weighed on gold. When reading gold prices, it is more accurate to examine whether these three trends are moving in the same direction than to rely on the single phrase “inflation hedge.”
References
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